Chapter 9

Achieving Operational Excellence and Customer Intimacy:

Enterprise Applications

Review Questions

1. What is an enterprise system? How does enterprise software work?

Enterprise software consists of a set of interdependent software modules that support

basic internal business processes. The software allows data to be used by multiple
functions and business processes for precise organizational coordination and control.
Organizations implementing this software would have to first select the functions of the
system they wish to use and then map their business processes to the predefined business
processes in the software. A particular firm would use configuration tables provided by
the software to tailor a particular aspect of the system to the way it does business. Table
9–1 describes some of the major business processes supported by enterprise software.
These include financial and accounting processes, human resources processes,
manufacturing and production processes, and sales and marketing processes.

2. How do enterprise systems provide value for a business?

Enterprise systems provide value both by increasing operational efficiency and by

providing firmwide information to help managers make better decisions. Large
companies with many operating units in different locations have used enterprise systems
to enforce standard practices and data so that everyone does buisness the same way.
Enterprise systems helps firms respond rapidly to customer requests for information or
products. Manufacturing is better informed about producing only what customers have
ordered, procuring exactly the right amount of components or raw materials to fill actual
orders, staging production, and minimizing the time that components or finished products
are in inventory.
Enterprise software includes analytical tools for using data captured by the system to
evaluate overall organizational performance. Enterprise system data have common
standardized definitions and formats that are accepted by the entire organization.
Enterprise systems allow senior management to easily find out at any moment how a
particular organizational unit is performing or to determine which products are most or
least profitable.
Companies can use enterprise systems to support organizational structures that were not
previously possible or to create a more disciplined organizational culture. They can also
improve management reporting and decision making. Furthermore, enterprise systems
promise to provide firms with a single, unified, and all-encompassing information system
technology platform and environment. Lastly, enterprise systems can help create the
foundation for a customer-driven organization

3. What is a supply chain? What entities does it comprise?

A supply chain is defined as a network of organizations and business processes for

procuring materials, transforming raw materials into intermediate and finished products,
and distributing the finished products to customers. It links suppliers, manufacturing
 plants, distribution centers, retail outlets, and customers to supply goods and services
from source through consumption. Supply chain management is the integration of
supplier, distributor, and customer logistics requirements into one cohesive process.

4. What is the bullwhip effect? How can supply chain management systems deal with
it?

The bullwhip effect occurs when information about the demand for a product gets
distorted as it passes from one entity to the next across the supply chain. It can also result
from “gaming,” as purchasers present manufacturers or suppliers with a false picture of
consumer demand. It can be dealt with by reducing uncertainties about demand and
supply when all of the supply chains have accurate and up-to-date information.

5. What are supply chain planning systems and supply chain execution systems? What
functions do they perform?

Supply chain planning systems enable the firm to generate demand forecasts for a product
and to develop sourcing and manufacturing plans for that product. They help companies
make better operating decisions such as determining how much of a specific product to
manufacture in a given time period; establishing inventory levels for raw materials,
intermediate products, and finished goods; determining where to store finished goods; and
identifying the transportation mode to use for product delivery. One of the most important
functions is demand planning, which determines how much product a business needs to
make to satisfy all of its customers’ demands. These functions are referred to as order
planning, advanced scheduling, demand planning, distribution planning, and
transportation planning.

Supply chain execution systems manage the flow of products through distribution centers
and warehouses to ensure that products are delivered to the right locations in the most
efficient manner. They track the physical status of goods, the management of materials,
warehouse and transportation operations, and financial information involving all parties.
These functions are referred to as order commitments, final production, replenishment,
distribution management, and reverse distribution.

6. How can the Internet and Internet technology facilitate supply chain management?

Firms using intranets to improve coordination among their internal supply chain
processes, and they can use extranets to coordinate supply chain processes shared with
their business partners. Using intranets and extranets, all members of the supply chain can
instantly communicate with each other, using up-to-date information to adjust purchasing,
logistics, manufacturing, packaging, and schedules. A manager can use a Web interface to
tap into suppliers’ systems to determine whether inventory and production capabilities
match demand for the firm’s products. Business partners can use Web-based supply chain
management tools to collaborate online on forecasts. Sales representatives can access
suppliers’ production schedules and logistics information to monitor customers’ order
status. The Internet has introduced new ways of managing warehousing, shipping, and
packaging based on access to supply chain information that can give companies an edge
in delivering goods and services at a reasonable cost.
7. Distinguish between a push-based and pull-based model of supply chain
management. How can contemporary supply chain management systems facilitate a
pull-based model?

In a push-based model, production master schedules are based on forecasts or best

guesses of demand for products, and products are “pushed” to customers. In a pull-based
model, actual customer orders or purchases trigger events in the supply chain.

In contemporary supply chain management systems, the Internet and Internet technology
make it possible to move from sequential supply chains, where information and materials
flow sequentially from company to company, to concurrent supply chains, where
information flows in many directions simultaneously among members of a supply chain
network. Members of the network immediately adjust to changes in schedules or orders.

8. How do supply chain management systems provide value for a business?

Supply chain management systems provide value for a business and enhance
organizational performance by:
 Matching supply to actual demand
 Reducing inventory levels
 Improving delivery service
 Speeding product time to market
 Using assets more effectively
 Improving customer service
 Reducing cost through the supply chain
 Cash utilization
 Increasing firms profitability
 Increasing sales

9. What is customer relationship management? Why are customer relationships so

important today?

Customer relationship management: business and technology discipline that uses

information systems to coordinate all of the business processes surrounding the firm’s
interaction with its customers in sales, marketing, and service.

Importance of customer relationships: Globalization of business, the Internet, and

electronic commerce have put more power in the hands of customers. Companies are
realizing that their only enduring competitive strength may be their relationships with
their customers. Some say that the basis of competition has switched from who sells the
most products and services to who “owns” the customer, and that customer relationships
represent the firm’s most valuable asset.

10. How are partner relationship management (PRM) and employee relationship
management (ERM) related to customer relationship management (CRM)?

CRM systems capture and integrate customer data from all over the organization,
consolidate the data, analyze the data, and then distribute the results to various systems
and customer touch points across the enterprise. Companies can use this customer
knowledge when they interact with customers to provide them with better service or to
 sell new products and services. CRM systems integrate and automate many customer-
facing processes in sales, marketing, and customer service, providing an enterprise-wide
view of customers. These systems track all of the ways in which a company interacts with
its customers and analyze these interactions to maximize customer lifetime value for the
firm. CRM extends to a firm’s business partners who are responsible for selling to
customers.

The more comprehensive CRM packages contain modules for partner relationship
management (PRM) and employee relationship management (ERM).

PRM uses many of the same data, tools, and systems as CRM to enhance collaboration
between a company and its selling partners. If a company does not sell directly to
customers but rather works through distributors or retailers, PRM helps these channels
sell to customers directly.

ERM software deals with employee issues that are closely related to CRM, such as setting
objectives, employee performance management, performance-based compensation, and
employee training.

11. Describe the tools and capabilities of customer relationship management software
for sales, marketing, and customer service.

Customer relationship management systems typically provide software and online tools
for sales, customer service, and marketing. Refer to Figure 9–9 for a diagram of the
business processes that CRM software supports for sales, marketing, and service.
Capabilities include the following:

Sales:
 Sales force automation modules in CRM systems help sales staff increase their
productivity by focusing sales efforts on the most profitable customers, those who are
good candidates for sales and services.
 CRM systems provide sales prospect and contact information, product information,
product configuration capabilities, and sales quote generation capabilities.
 CRM software enables sales, marketing, and delivery departments to easily share
customer and prospect information.
 CRM software increases salespeople’s efficiency in reducing the cost per sale as well
as the cost of acquiring new customers and retaining old ones.
 CRM software has capabilities for sales, forecasting, territory management, and team
selling.
 CRM software supports direct-marketing campaigns by providing capabilities for
capturing prospect and customer data, for providing product and service information,
for qualifying leads for targeted marketing, and for scheduling and tracking direct-
marketing mailings or e-mail.

Customer Service:
 Customer service modules in CRM systems provide information and tools to make
call centers, help desks, and customer support staff.
 CRM modules have capabilities for assigning and managing customer service
requests.
 CRM systems may also include Web-based self-service capabilities.
 Marketing:
 CRM systems support direct-marketing campaigns by providing capabilities for
capturing prospects and customer data, for providing product and service information
for qualifying leads for targeted marketing, and for scheduling and tracking direct-
marketing mailings or e-mail.
 Marketing modules also include tools for analyzing marketing and customer data.
Identifying profitable and unprofitable customers, designing products and services to
satisfy specific customer needs and interests, and identifying opportunities for cross-
selling, up-selling, and building.

12. Distinguish between operational and analytical CRM.

Operational CRM includes customer-facing applications such as tools for sales force
automation, call center and customer service support, and marketing automation.

Analytical CRM includes applications that analyze customer data generated by

operational CRM applications to provide information for improving business
performance management.

13. Define the following terms and explain why they are important for customer
relationship management: churn rate, customer lifetime value (CLTV), best
practices.

The churn rate measures the number of customers who stop using or purchasing products
or services from a company. It is an important indicator of the growth or decline of a
firm’s customer base.

Customer lifetime value (CLTV) is based on the relationship between the revenue
produced by a specific customer, the expenses incurred in acquiring and servicing that
customer, and the expected life of the relationship between the customer and the
company.

Best practices are the most successful solutions or problem-solving methods for
consistently and effectively achieving a business objective.

Companies can use the information obtained from these three principles to find ways to
interact more effectively with their customers and provide them with better service or to
sell them new products and services. These systems also identify profitability or
nonprofitability customers or opportunities to reduce the churn rate.

14. What are the challenges posed by enterprise applications? How can these challenges
be addressed?

Enterprise applications are very difficult to implement successfully. They require

extensive organizational change, large new software investments, and careful assessment
of how these systems will enhance organizational performance. Management vision and
foresight are required to take a firm- and industry-wide view of problems and to find
solutions that realize strategic value from the investment. Enterprise applications create
new interconnections among myriad business processes and data flows inside the firm
 (and in the case of supply chain management systems, between the firm and its external
supply chain partners). Employees require training to prepare for new procedures and
roles. Attention to data management is essential.

15. How can enterprise applications be extended to provide more value to businesses?
Describe the role of service platforms and portals?

Enterprise applications can be extended to provide more value by:

 Increasing customer satisfaction
 Reducing direct-marketing costs
 Realizing more effective marketing
 Lowering costs for customer acquisition and retention
 Increasing sales revenue by identifying the most profitable customers and segments
for focused marketing, cross-selling, and up-selling

Corporations are continually on the lookout for ways to leverage their investments in
enterprise applications. Service platforms integrate data and processes from the various
enterprise applications (customer relationship management, supply chain management,
and enterprise systems), as well as from disparate legacy applications to create new
composite business processes. Application integration middleware or Web services tie
various systems together. The new services are delivered through enterprise portals,
which can integrate disparate applications so that information appears to be coming from
a single source. This provides a seamless experience for the customer, employee,
manager, or business partner.